Podcasts

Jean-Marie Eveillard on China vs. India

In Jean-Marie Eveillard’s Q&A session at Asian Investing Summit 2017, a member wrote in a question about the very long-term prospects of China vs. India, i.e., over the next two decades or more. The questioner paraphrased Charlie Munger who has reportedly said that India has taken the worst aspects of democracy and tied its economy in knots because of that. As a result, Munger has been much more bullish on China.

Meanwhile, Rahul Saraogi, Managing Director of Atyant Capital Advisors and instructor at Asian Investing Summit, has in the past forcefully argued that India is building its future on a much more solid foundation than is China. Rahul essentially argues that China’s command-and-control economy suffers from major mis-allocations of capital stemming from massive government intervention. Meanwhile, India has let the competitive dynamics of free market capitalism take hold, with much less government intervention than is the case in China.

So what is Jean-Marie Eveillard’s take?

While acknowledging his respect for Charlie Munger, Jean-Marie left no doubt which country he sees ahead over the very long term.

Consider his remarks:

I hate to disagree with Charlie Munger because I admire him considerably. Warren Buffett concedes that he was pushed to some extent by Charlie Munger to develop his own approach of looking at businesses with sustainable competitive advantage. I hate to disagree with Charlie Munger but I think Mr. Modi has already taken steps and may make a difference.

A day after Jean-Marie Q&A session, we had an opportunity to pose the question of India vs. China again to Rahul Saraogi. His answer was nuanced and enlightening:

India versus China is a bad comparison. China has ~1.3 billion people, India has ~1.3 billion people, but that is where the comparison ends. China is a $9 trillion economy, India is a $2 trillion economy. India is not even in the same league. China has done a terrific job of pulling a lot of people out of poverty. It is easy to belittle a capital-intensive growth model and infrastructure build-out growth model [but] they are the envy of the world. The U.S. would like to do it today, but it is very hard when you have to get things through Congress and the court system. China is able to rally its local and state governments to build the things that it has built. In one generation, they have pulled a lot of people out of poverty.

India has too much due process. It has a lot of democracy, and it has those issues. Having said that, as investors we are not here to pass value judgments on which model is right. The only thing that matters is margin of safety and upside; I call that asymmetry. From my perspective—I’m making a figurative statement—India is at a “5”, and China is at “90”. I don’t see China going from 90 to 100. China might come down from 90 to 70, and India might go from 5 to 10. At 10, India is still going to be a minion compared to China at 70. China is not going to go away as an economy, it’s not going to become smaller as an economy. But as an investor, a move from 90 to 70 is very different from 90 to 100 or 110 or 120, which is what China was doing for the last twenty years. From India’s perspective, if it can double from an economic perspective, it will probably not get to where China is given the baggage of democracy, but it still makes a pretty good hunting ground for investors.

When we invest, the only thing that matters is, where are we coming from and where are we going? I need to give that context. India’s act looks pretty cleaned up. It is probably headed from “5” to “10” over the next several years, which is a great environment in which to pick stocks.

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